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Spicers signs deal to break hybrid deadlock

Paper company Spicers, formerly PaperlinX, has agreed to a plan that it hopes will end a long-running dispute with its hybrid shareholders and restore the company’s capital structure.

Spicers told the ASX on Tuesday it had entered into a binding implementation agreement with The Trust Company (RE Services) – the Responsible Entity overseeing the $285 million PaperlinX Step-Up Preference Securities. The deal, conditional on a vote by both existing equity owners and preference securities holders, would see the hybrid-holders take a 68.3 per cent stake in the company.

'We are starting to see a clear way ahead at last': Robert Kaye, chairman, Spicers

Should both groups of shareholders agree to the plan, Spicers chairman RobertKaye and non-executive director Michael Barker would stand down from the board and allow the new owners to nominate their own directors.

“The Board recognises the sustained period of uncertainty experienced by Spicers stakeholders,” said Kaye. “Legacy conflicts between respective sets of security holders restrict Spicers’ ability to raise capital, pay dividends and for the market to determine the true value of the business. This in turn significantly limits Spicers’ commercial and financial options.”

“If successful, the Proposed Transaction would result in current SPS unitholders owning more than two-thirds of the combined equity of the Company. We believe this is an optimal ratio, which provides the best opportunity to accommodate both sets of security holders, and offers value to both ordinary shareholders and SPS unitholders.”

“Spicers has come through an exceptional period of disruption in core paper markets and its previous European operations. We are starting to see a clear way ahead at last, but the legacy issue of a complex capital structure still stands in the Company’s way. There will be no winners unless these issues are rationally confronted and resolved,” said Kaye.

In its statement to the ASX, Spicers said the proposed agreement represents:– a 51.4% premium to the last SPS unit closing price of $9.00;– a 43.1% premium to the SPS unit 30-day Volume Weighted Average Price of $10.05;– a 55.5% premium to the SPS unit 60-day VWAP of $9.76.

Simplifying the capital structure is a key pillar of the Spicers Board’s plans to unlock value for both sets of security holders and to put Spicers on a more sound and sustainable footing for the future. The Spicers Board believes that now is the right time for such a transaction, following the Company’s withdrawal from European operations in 2015 and a subsequent return to overall profitability in the 2016 financial year.

The Spicers Board believes that a simplification of the capital structure is in the best interests of the Company, and both sets of security holders. If implemented, the Proposed Transaction will enable the Company to undertake a full range of commercial and financial activities beyond its current capabilities and which most listed entities take for granted, including access to capital raisings and consideration of larger-scale acquisitions.

The Spicers board intends to unanimously recommend that shareholders vote in favour of the Shareholder Resolution. The shareholder vote has been scheduled for an extraordinary general meeting in April 2017.